Fertecon Nomura Fertlizer Conference March 2013

FERTILIZER OUTLOOK

by

Barrie Bain Director of Fertilizer Intelligence FERTECON Limited Nomura Global Chemical Industry Leaders Conference, Venice, 21 March 2013

FERTECON/ Nomura/ Venice March 2013 1

Knowledge would often confuse them

2

FERTECON Limited

• Formed in 1978 • Leading global provider of fertilizer market

information, prices and analysis • Now part of Informa plc • The link with Informa gives FERTECON new

access to data and analysis resources on agriculture, shipping and freight and energy

FERTECON/ Nomura/ Venice March 2013

FERTILIZER USE


Either to hath it sterile with idleness or manured with industry

FERTILIZER TYPES • There are three main nutrients • Nitrogen (N) • Phosphate (P2O5) • Potash (K2O)

• There are secondary and micronutrients such as sulphur, magnesium, zinc

etc.

• Nutrients perform different functions in the growth of the plant and the three main nutrients cannot be substituted for each other

• Plants need balanced nutrient application – how much and in what proportion depends on the soil type and the crop being grown

• Without chemical fertilizers, crop production would be reduced by almost half


WORLD/ EU FERTILIZER USE


Million tonnes nutrient


EU FERTILIZER USE

FERTILIZER USE BY CROP 0 10 20 30 40 50 60 70 80 90 100

World total

EU 27 total

wheat corn other coarse rice soybean oil palm other oil seed cotton sugar fruit + veg other

percent


Source:IFA

NITROGEN USE BY CROP 0 10 20 30 40 50 60 70 80 90 100

World N

EU 27 N


percent


Source: IFA

PHOSPHATE USE BY CROP 0 10 20 30 40 50 60 70 80 90 100

World P

EU 27 P


percent


Source: IFA

POTASH USE BY CROP 0 10 20 30 40 50 60 70 80 90 100

World K

EU 27 K


percent

Source: IFA


FERTILIZER USE BY CROP 0 10 20 30 40 50 60 70 80 90 100

World total

EU 27 total

World N

EU 27 N

World P

EU 27 P

World K

EU 27 K


percent

Source:IFA


CROP PRICES

0

2

4

6

8

10

12

14

16

03 04 05 06 07 08 09 10 11 12 13

$/bushel

Source: USDA

soybean

wheat corn

Monthly average price received by US farmers


CROP vs FERTILIZER PRICES


CROP vs FERTILIZER PRICES


FERTILIZER TO CROP PRICE RATIOS


CORN TO FERTILIZER RATIOS


CROP : FERTILIZER CORRELATIONS

UREA DAP MOP

2003-2012 0.75 0.71 0.67

2006-2010 0.75 0.71 0.89

2011-2012 0.17 -0.23 0.46


CORRELATION BREAKDOWN

• Fertilizer price are driven by supply as well as demand • Time lags • Levels were already high enough to stimulate good fertilizer

demand at the start of 2011 – you don’t necessarily put more fertilizer on $7 corn than $5 corn

• Influence of non-commercial and semi-commercial markets – especially India


CROP vs FERTILIZER PRICES - EUROPE


CROP vs FERTILIZER PRICES - EUROPE


FERTILIZER TO CROP PRICE RATIOS- EUROPE



FERTILIZER TO CROP PRICE RATIOS- EUROPE


DO FERTILIZER PRICES DRIVE CROP PRICES? OR DO CROP PRICES DRIVE FERTILIZER PRICES?


DO FERTILIZER PRICES DRIVE CROP PRICES? OR DO CROP PRICES DRIVE FERTILIZER PRICES?

http://www.google.co.uk/url?sa=i&rct=j&q=cheicken+egg&source=images&cd=&cad=rja&docid=13C4J31AuHOrZM&tbnid=JFSzAS7tEl-q5M:&ved=0CAUQjRw&url=http://www.bubblews.com/news/14577-which-came-first-the-chicken-or-the-egg&ei=5PAtUdv_I6q-0QXXgIGoCQ&bvm=bv.42965579,d.d2k&psig=AFQjCNGEZTpDrd9xlXznkqktS9lnucZ2ow&ust=1362051665344833�

NITROGEN


Sometimes, I feel the past and the future pressing so hard on either side that there's no room for the present at all

26

NITROGEN PRODUCTION

AMMONIA NATURAL GAS/ COAL/FUEL OIL CO2

UREA NITRIC ACID

AMMONIUM NITRATES UAN

SULPHURIC ACID

AMMONIUM SULPHATE

POTASSIUM NITRATE

MOP


NEW UREA SUPPLY

• New low-cost capacity in Algeria (three 1.2 million t/y plants) • Additional capacity in Africa (Nigeria and Gabon)

• New supply from Middle East (Qatar, Abu Dhabi)

• Lower gas prices in North America encouraging new supply,

thus reducing import demand


NEW LOW-COST UREA EXPORT CAPACITY


US NITROGEN PRODUCTION


US NITROGEN IMPORTS



GAS PRICES

NITROGEN PRODUCTON COSTS • The EU 15 has the most efficient nitrogen fertilizer plants in the

world – more efficient than the US and even new plants in North Africa and the Middle East

• However, it has some of the highest production costs in the World

• This is due to high gas costs in Europe

• In contrast, the fall in US gas prices has made US prodcution extremely competitive


UREA COST CURVES


US UREA COST OF SUPPLY - 2013


US UREA COST OF SUPPLY - 2015


US UREA CASH MARGINS


EUROPE: UREA COST OF SUPPLY - 2013


EUROPE: UREA COST OF SUPPLY - 2015


World


EU/RoW FERTILIZER NITROGEN USE

EU 27


EU CAN SUPPLY


EU AMMONIUM NITRATE SUPPLY

EMISSION TRADING SCHEME

• EU ETS now applies to CO2 emissions from ammonia production, N2O emissions from nitric acid production and CO2 emissions relating to energy use

• Applies even when CO2 is captured – for urea production or industrial uses

• Benchmarking means that currently the most efficient ammonia plants incur modest costs

- although as emission benchmarks are reduced cost potentially will increase

• European plants are the most efficient in the world.

• N2O emissions from nitric acid plants being reduced by retrofitting of plants

• However, the collapse of the carbon price to under €5/t CO2 has made the scheme meaningless and there are calls for it to be scrapped


AMMONIA /UREA PRICE OUTLOOK

43 FERTECON/ Nomura/ Venice March 2013

PHOSPHATES


You will profit by the failure, and will avoid it another time

45

PHOSPHATE PRODUCTION

SULPHURIC ACID SULPHUR PHOSPHATE ROCK

PHOSPHORIC ACID

AMMONIA DAP/MAP TSP

SSP


PHOSPHATE

• Phosphate prices had been high due to tight supply, but fell in 2012

• As the Ma’aden project in Saudi Arabia, plus expansions in Morocco and elsewhere ramp up, the market has become more balanced

• Prices have picked up recently, but are expected to fall again in second half 2013

• The very high phosphate prices of 2007-2008 have stimulated a massive interest in developing phosphate rock reserves – in Central Asia, Africa, Australia and Latin America


MOROCCO – AMBITIOUS EXPANSION PLANS

• State-owned OCP has ambitious expansion plans for its phosphate operations

• It has been looking for j-v partners, but is willing to go it alone • It has the following projects for finished phosphate fertilizers: • 2013 – 1 million t/y • 2014 – 2 million t/y • 2015 – 1 million t/y • There are likely to be delays but will are likely to see at least

part of this come on-stream


MA’ADEN 3 MILLION T/Y DAP PROJECT

• The Ma’aden phosphate project finally came on-stream last year. Full operation will be achieved soon

• Originally scheduled for 2009 • Represents 18% of global DAP export supply • Delay means that supply was initially easily absorbed into the market

given strong demand • Go ahead for a new project (now as a j-v with Mosaic) and expansion

of existing plant will see Saudi Arabian supply increase substantially over the next 5 years


PHOSPHATE PRICE OUTLOOK


PHOSPHATE PRICE OUTLOOK


POTASH


Here is a case unprecedented If thou will lend this money, lend it not as to thy friends.

52

POTASH PRODUCTION

SULPHURIC ACID

SULPHUR MOP

SOP

AMMONIA NOP



• Supply very concentrated • Two major supply points – Canada and FSU –

account for two thirds of world production • This was represented by six producers and three

marketing organisations. Now five producers and two marketing organisations

• Three marketing organisations – Canpotex, BPC and K+S – account for over 70% of sales

• Four marketing organisations control 85% of sales.

WORLD POTASH PRODUCTION


WORLD POTASH PRODUCTION

NEW POTASH CAPACITY


POTENTIAL NEW POTASH PRODUCERS


2012 2020 additions

Europe K+S, Israel Chemicals Sirius (UK)

CIS Uralkali Acron, EuroChem

Africa - Congo, Ethiopia, Eritrea

Asia around 30 enterprises in China, 1 in Laos

Several enterprises in Laos

North America Agrium, Mosaic PotashCorp, Compass, Intrepid

IC Potash, several other potential projects

Latin America SQM, Vale Potential in Brazil

POTASH PROJECTS

• Lots of greenfield projects have been announced but few will be developed

• Projects from junior mining companies will struggle to get finance

• Even projects from major companies face challenges – e.g. Vale’s Rio Colorado in Argentina now suspended, major delays at EuroChem’s first Russia project

• The big unknown - BHP Billiton's Jansen project: over $1 billion spent but still no board approval

• The one certainty with greenfield projects the will cost more and take longer to build than forecast


LAOS - NEW POTASH SUPPLY SOURCE

• Rapid development of shallow potash deposits in Laos

• Already some production • Low capital costs • Quicker build • Chinese investment

58

0

1

2

3

4

5

11 12 13 14 15 16 17 18 19 20

LAOS POTENTIAL POTASH CAPACITY

Million tonnes/year MOP


LAOS POTASH MINING

59 FERTECON/ Nomura/ Venice March 2013

POTASH PRICE OUTLOOK


POTASH PRICE OUTLOOK


SUPPLY/DEMAND OUTLOOK


It depends upon what you compare it with

SUPPLY / DEMAND GROWTH 2011-2015

• Supply is growing faster than demand in all three nutrients, particularly nitrogen

• New urea capacity in the will add 50 million tonnes/year (27 million in China)

• New potash supply adds 22 million tonnes MOP (29% increase)


THE QUOTATIONS

• Knowledge would often confuse them – Death in Venice, Thomas Mann • Either to hath it sterile with idleness or manured with industry – Othello, William

Shakespeare

• Sometimes, I feel the past and the future pressing so hard on either side that there's no room for the present at all – Brideshead Revisited , Evelyn Waugh

• You will profit by the failure, and will avoid it another time – Little Dorrit, Charles Dickens • If thou will lend this money, lend it not as to thy friends - The Merchant of Venice, William

Shakespeare

• Here is a case unprecedented - The Gondoliers, W.S. Gilbert

• It depends upon what you compare it with – The Aspern Papers , Henry James


Documents

Fertecon Nomura Fertlizer Conference March 2013